“This article was written by Olivier Gergaud and Azilis Lesteven (formerly Comité Champagne) and published on December 20, 2021 on the Economics Observatory website. You can access this article using the following address:
Champagne is the world’s leading wine with ‘protected designation of origin’. Sales represent a third of global spending on sparkling wines and 9% of the total volume produced within this wine category. Half of the total production of this iconic French industry is exported, going to more than 150 countries.
Analysis of export data reveals the extent to which champagne is a luxury commodity among sparkling wines, with purchases rising significantly as people’s incomes increase. Although we do not have a precise estimate of this effect for champagne specifically, one study reports that the income elasticity of demand (the multiple by which demand grows with rising incomes) of French sparkling wines in China is as high as 2.86 (Liu and Song, 2021). Figure 1 shows the strong link between GDP per capita (here of OECD countries) and global champagne shipments.
Figure 1: Global champagne shipments and GDP per capita of OECD countries
Source: Comité Champagne and OECD
To the best of our knowledge, this is the only available estimate of its kind. It is reliable because the vast majority of sparkling wine exports originate from the Champagne region in northern France. And as the demand for this product is so responsive to income, one easily understands why the champagne economy can be negatively affected during economic and financial downturns.
This article draws insights about the potential future of the champagne industry, which has been hard-hit by the Covid-19 pandemic, by reviewing the economic consequences of previous major economic and public health crises on champagne sales and analysing interest in the product derived from Google Trends.
From this analysis, alongside recent declarations from champagne authorities about temporary supply restrictions, we discuss the main challenges facing the industry in the coming years.
What has happened to the champagne economy over the past century?
The champagne economy has experienced five long expansion periods and six recessions since 1970 (see Figure 2). On average, champagne sales receded by around 11% during the main economic and financial shocks of the 20th and 21st centuries (see Table 1). By comparison, the two world wars had a stronger negative impact of around 40%.
The most recent three of the last five big economic or financial crises had a significant impact on the industry. While the oil crises of 1973 and 1979 led to an immediate drop in shipments of 8% and 13% respectively, sales of champagne came back to their normal level soon after, in 1976 and 1984 respectively, reaching new historic records.
The crash of October 1987, resulting from the collapse of stock markets, and the Gulf War of 1990 led to a global recession that lasted until 1993 in France. The recession of the early 1990s had a much more lasting effect: champagne sales dropped by 9% and only regained their 1990 level in 1994.
The dot-com bubble, which reached its peak in March 2000, also had severe consequences for champagne shipments, resulting in a 17% reduction.
Finally, the global financial crisis of 2007-09 led to a drop in champagne shipments of around 5% and 13% in 2008 and 2009 respectively, while GDP per capita dropped by 7% in 2009. As of today, 2007 remains the record year for champagne sales with 338 million bottles shipped.
Pandemics also trigger substantial negative economic shocks for the champagne industry. During the influenza pandemic of 1918-20, sales dropped by about 29%.
Figure 2: The evolution of champagne sales since 1910
Source: Comité Champagne
But hard times are generally followed by a strong economic recovery for the champagne industry (as Figure 2 shows). The current champagne revival is not unprecedented. After the First World War, champagne sales soared by 48% in 1919, and by 14% in 1946 after the Second World War. After the pandemic of 1918-20, a burst of partying is also evident in the records with a sharp rise in champagne shipments – an increase of 52% from 1920 to 1926.
What has been the impact of Covid-19 on the champagne industry?
The impact on demand: evidence from Google Trends
The initial period of the Covid-19 pandemic, which started in March 2020, had a considerable effect on sales and consumption of champagne throughout the world. With weddings, graduations and many other celebrations cancelled or postponed, by the end of 2020, the pandemic had resulted in a loss of around 18% of previous annual sales volume. In 2020, the industry released around 244 million bottles compared with almost 300 million bottles the previous year.
In France, almost 90% of the drop took place during the two waves of the pandemic in March-May 2020 and October-December 2020. Across the rest of the world, the fall in shipment volumes occurred more particularly during the second quarter of 2020 and then climbed back to a quasi-normal level in the fourth quarter of that year (see Figure 3).
Figure 3: Champagne shipments (France and exports) in 2020 (seasonally adjusted)
Source: Comité Champagne
Figure 4 uses monthly data to compare the evolution of champagne shipments in volume (light green) and changes in the interest of internet users in the word ‘champagne’ (dark green) in France during 2020. Google Trends analyses data and ‘interest’ over time for a topic – with interest determined as a proportion of all searches for all topics on Google at a particular time and location.
Figure 4: Interest in the word ‘champagne’ in Google Trends versus variations in champagne shipments in France
Source: Comité Champagne and Google Trends
In 2020, champagne shipments were astonishingly correlated with Google searches for the word ‘champagne’ in France, a country that accounts for a significant fraction of the global champagne market – 46% of champagne shipment volumes (see Figure 4). In an exploratory statistical exercise, we analysed the impact of the two lockdowns in France, and in Australia, on Google Trends interest in the word ‘champagne' and monthly champagne shipment volumes (see Table 2).
Further analysis shows that the first lockdown in France resulted in a loss of interest in the word ‘champagne’ of about 12.4 percentage points (and 13.4 percentage points during the second lockdown). Compared with 2019, champagne shipments dropped by about 48% and 30% in volume, respectively, during these critical periods in 2020. This is equivalent to a loss of 4.55 million and 7.45 million bottles.
A similar calculation for Australia shows a comparable negative impact (-10.9 percentage points) during the first lockdown, which occurred more or less at the same time as in France. The second wave there ended with zero new cases being recorded on 26 October 2020. A significant surge in interest in the word ‘champagne’ (+5.5%) was observed in Australia in the period that immediately followed that very encouraging news, which corresponded with the second lockdown in France.
During this bright period, shipments more than doubled (+124%) compared with the same period in Australia in 2019. This sudden craze for champagne (+229,926 75cl bottles) at a time when Australian citizens thought that the pandemic was under control is striking. After the country emerged from months of lockdowns and restrictions, interest in champagne not only rebounded but exceeded the levels they had reached prior to New Year’s Eve in 2019.
The same evolution of Google Trends indices has been observed in other key champagne markets, including the UK and the United States (see Figure 5).
Figure 5: Evolution of interest in the word ‘champagne’ in four key markets in 2020
Source: Google Trends
The fast recovery of the US economy coupled with the early excitement of a large fraction of American citizens around the Biden presidency and the large and efficient vaccination campaign that started in early 2021 made champagne producers optimistic. The interest of US internet users in the word ‘champagne’ hit a historic level around New Year’s Eve 2021 with 23 additional percentage points compared with the level on New Year’s Eve in 2016 (see Figure 6).
Figure 6: Evolution of interest in the word ‘champagne’ in the United States
Source: Google Trends
The impact on supply
Every year, the representatives of the champagne grape growers union (Syndicat Général des Vignerons) meet those of the champagne houses (Union des Maisons de Champagne) in July, around two months before the harvest starts. They negotiate the quantity of grapes (in kilograms) that grape growers are allowed to harvest – the yield cap.
This regulation mechanism is used to avoid overproduction, and to maintain a sustainable income for winegrowers and a sustainable cost of grapes for champagne houses. The annual yield cap is set during a meeting at the headquarters of the regional body that controls the champagne appellation – called the Comité Champagne.
After an unusually long round of negotiations in 2020, the champagne houses and winegrowers agreed a yield for that year’s harvest 20% lower than in 2019, to avoid generating an oversupply of grapes. The historical 2020 agreement corresponds to 8,000 kilograms/hectare, which is equivalent to 230 million bottles.
It was followed at the start of 2021 by an adjustment of an additional 400 kilograms, bringing the yield to 8,400 kilograms/hectare. In July 2021, it was decided to raise this cap again to 10,000 kilograms/hectares, thus acknowledging a clear rebound in demand observed in many countries around the world.
Conclusion
Champagne shipments suffered a sharp decline during the coronavirus lockdowns in several countries, including France and Australia. But the sudden drop was quickly followed by a significant rebound in interest.
The economic turnaround for the industry is not unprecedented and it will undoubtedly be confirmed soon by publication of the official statistics from the Comité Champagne in January 2022. This suggests some notable developments on the demand side:
- First, the negative economic shock induced by the pandemic negatively affects the consumption of luxury goods like champagne.
- Second, a significant fraction of consumers, who had fewer opportunities to spend on cultural activities, travel and so on substitute for luxury products like champagne, which can be consumed at home. This may have been particularly the case for those working in industries relatively unaffected by the pandemic (for example, those where workers could continue working from home), as individuals did not lose income or were even able to save.
- Third, consumers seem to be willing to catch up on pleasure as suggested by the impressive rising interest in the word ‘champagne’ on Google Trends across many countries, like Australia, after the end of lockdown.
A post-pandemic champagne revival is currently happening. But at the same time, champagne producers are concerned about increasing shipping costs for ocean freight, which have recently multiplied by a factor of almost 10. If this lasts, producers may raise prices, with some predictable consequences for champagne exports in non-European countries including the United States, Australia, New Zealand, Japan, South Korea and China, just to name a few.
Where can I find out more?
- Le marché et la production de champagne: XERFI report on the production of and market for champagne (in French).
- Comité Champagne: Annual report from 2020.
- Comité Champagne: Key statistics.
- Fédération des Exportateurs de Vins et Spiritueux: 2019 report on the export of French wines and spirits (in French).
- Grandes Marques et Maisons de Champagne: Article and links on the champagne economy.
- Grandes Marques et Maisons de Champagne: Key statistics.
- Champagne exports 2020: Ranking of countries where France exports the largest number of bottles.